Eurowatch: Irish elections, Bankia, Greece. . .

The pace of events in Europe accelerates, riding the slop of an exponential debt curve that’s got the whole euro edifice quaking, with the latest tremors in Ireland, Spain, and — as always, Greece.

Much to report, so rather than summarize more, let’s cut to the chase.

Ireland votes on EU austerity mandate

Back before Greece grabbed center stage, folks talked about the PIIGS — Portugal, Ireland, Italy, Greece, and Spain — as the five most troubled economies in Europe.

While the focus of late has been on Greece and Spain, Ireland’s still very much on the list, and voters there are deciding this week whether or not to endorse the European Union’s austerity mandate. The Emerald Isle is the only nation to put the issue up to its citizens for a decision.

First, from Shawn Pogatchnik of the Associated Press:

Prime Minister Enda Kenny accused the Irish nationalist Sinn Fein party of lying about Ireland’s need to slash its annual deficits and keep its future options open for bailout loans from European Union partners. And Kenny defended his campaign-trail refusal to debate directly with Sinn Fein leader Gerry Adams.

“I am not going to be shoved around by Sinn Fein,” Kenny said. “I am not going to give a platform to somebody who I don’t regard as the leader of the opposition, to propagate what are blatant lies and hypocritical assertions.”

Adams countered that the government was trying to scare voters into believing that Ireland would “fall off the end of the world” if it shoots down the treaty. He insisted Ireland would be better off, and argued that an Irish “no” would force the entire 17-nation eurozone to rethink its austerity strategy.

Ireland is the only one of 25 nations putting the EU’s deficit-fighting agreement to a national vote. Results are expected Friday night.

Prime Minister Enda Kenny warned Monday that Ireland’s sovereign debt could be downgraded by rating agencies if the country rejects the EU’s fiscal pact in a referendum on Thursday.

Kenny’s comments came as the first votes in Ireland’s referendum were cast on five remote islands off the northwest coast ahead of the mainland ballot.

“We have had a number rating agencies already indicate that if the people were to turn down the fiscal stability treaty, that a downgrading of the country would follow,” Kenny told reporters.

“When we are in the business of being serious with companies abroad who want to know the kind of country that we are and what it is that we offer, why should we inflict a lack of confidence on our own belief and on our own country?

“These people want to know what the future is going to hold for them if they invest serious money in Ireland,” he added.

Proponents of voting Yes to the current Treaty threaten all manner of dire consequences for this economy in the event of No vote. Never quite explaining why further Irish borrowing will be required if everything is going so well currently, the argument actually underlines the complete failure of policy which has been imposed across the Euro Area in the name of deficit-reduction. In reality the most stringent of these ‘deficit-reduction’ measures have been applied in Greece.

If voters want to avoid a Greek fate for Ireland, and for the whole of Europe, they should vote No.

Micheal Martin, head of Ireland’s now-in-opposition Fianna Fail [Republican Party], has admitted for the first time that Irish taxpayers were left with the unpopular €34bn bill from Anglo Irish Bank because the government felt under pressure to save the single currency. “We did it for the euro,” he told the Herald.

So the Irish taxpayers bailed out a bank, and they weren’t even told the real reason why.

Sounds like Martin should be working for the Obama administration.

Post-Greek election summit planned

The usual suspects will be gathering after the 17 June vote to decide what the hell to do next in the event things don’t go the way they want.

From EurActive:

The leaders of France, Germany, Spain and Italy will meet in Rome after the June Greek election to discuss the eurozone crisis, the Italian press reports, as talk of Greece leaving the single currency gain momentum.

A sudden selloff has sent the euro sliding to a new 22-month low against the dollar.

No sooner had European stock markets closed than the single currency was sliding through the $1.25 mark, hitting $1.2471 against the US dollar.

It also fell to a four-month low against the yen.

The immediate cause of the slump appears to be credit rating agency Egan Jones, which slashed its rating on Spain to B, from BB-. Egan Jones aren’t usually as influential as the Big Three agencies, but today’s downgrade comes just a week after it cut Spain from BB+ to BB-.

Currency experts are also blaming the euro’s weakness on the confusion surrounding the Spanish banking crisis. Today’s apparent u-turn on the plan to recapitalise Bankia (with new bonds apparently being favoured over the ‘unconventional’ scheme to inject Spanish government debt into the company) has not helped.

Spanish default insurance costs soar

This goes right along with the drop in euro value.

From Valentina Pop of EUobserver:

The cost of insurance against a Spanish default reached another record on Monday, with Italy’s borrowing costs also rising sharply amid continued market fears about the fate of the eurozone.

“With a risk premium at 500 points, it is very difficult to raise finances,” Spanish Prime Minister Mariano Rajoy said Monday (28 May) in a press conference. His country’s ‘debt risk premium’ – the default insurance investors demand on Spanish bonds compared to German bunds – that day leapt to a eurozone record of 514 basis points.

>snip<

Similar to Spain, Italy’s borrowing costs also spiked on Monday, with two-year bonds selling at extra costs of over four percent, compared to a 3.3 percent rate last month before the Greek elections.

Meanwhile, German bonds last week sold at a record of zero-percent interest, as investors are flocking to these ‘safe-haven’ treasury papers.

European Parliament chief Martin Schulz, himself a German national, said last week that this widening gap between Germany and other eurozone countries is “destroying Europe” and urged the German chancellor to change policies.

Okay, it’s the punchline an old joke told around middle school locker rooms, but we can imagine the rising pitch of the Spanish Prime Minister’s plea.

From ANSAmed:

It is necessary that the EU “gives a strong and clear message concerning the euro”, to eliminate any doubts regarding its situation. This is the appeal sent out today by the Spanish Prime Minister Mariano Rajoy. His first press conference since taking office, Rajoy justified the government’s intervention to nationalise Bankia because “the alternative was failure”. The PM did not explain in detail what the recapitalisation process will be : “We still haven’t taken any decision regarding the mechanism to inject money into Bankia”, whose safety will cost overall 23 billion euros, the most expensive plan put forward in Spain until now.

And on the other end of the Mediterranean, the news is equally dolorous.

From Deutsche Welle:

Spanish share prices have fallen once again as anxiety grew about the need for a fresh banking bailout. As debt yields rose, concerns that the country itself may be forced to seek international help grew.

Share prices on the Madrid stock market plunged to their lowest level in nine years on Monday due mainly to traders’ concerns about the Spanish bank Bankia.

At one point the lender’s shares had lost 29 percent of their value, but they bounced back later in the day to close down by just over 13 percent. This followed the bank’s announcement on Friday that it planned to seek another 19 billion euros ($23.8 billion) in government assistance. That amount is in addition to the 4.5 billion the Spanish government has already pumped into the bank, which was created through a merger of seven regional lenders in 2010.

Restructuring is the name of play in the austerity game, when bad banks are amalgamated into bigger bad banks, hopefully reaching that critical “too big to fail point,” where even more debt will be doled out to the rich in the name of saving the poor.

From the BBC:

Three Spanish savings banks, Ibercaja, Liberbank and Caja3, are considering a merger to strengthen their balance sheets as the country’s debt crisis continues to bite.

The banks said their boards would meet on Tuesday to vote on the merger.

>snip<

The Spanish government is requiring its banks to set aside an extra 30bn euros to cover bad debts resulting from the collapse of its property sector.

This comes on top of the 53.8bn euros already allocated in February.

>snip<

Caja3 is the result of a three-way merger of regional savings banks. Liberbank emerged after a four-way merger.

And Bankia, the debt-stricken part-nationalised bank that has requested a 19bn euro bail-out from the government, was formed after seven banks merged.

Another bank, Banco Popular, announced on Tuesday that it was in talks to sell its online banking business in an effort to raise cash.

Retailers in Spain have experienced the biggest monthly drop in sales since relevant statistics became available back in 2003. The sharp decrease in April goes hand in hand with fears of a protracted recession.

Spanish retail sales fell a staggering 9.8 percent in April compared to March, the National Statistics Institute reported on Tuesday. It was the biggest monthly drop ever officially recorded in the country.

The retail sales figure for April was down 11.3 percent compared with the same month last year. Spanish statisticians blamed the marked dip in purchases on the economic contraction, drastic government austerity measures and higher taxes which had left consumers with less money in their pockets.

Spain’s central bank on Tuesday added to the gloomy business climate by maintaining that Spain would continue to be stuck in recession in the second quarter of this year.

“Available indicators for the second quarter are still scarce, but they do anticipate that activity will continue contracting in this period,” the Bank of Spain said in its latest monthly report. The bank echoed an earlier assessment by Economy Minister Luis de Guindos who had already forecast a further decline in business activities.

Alexis Tsipras, leader of the Greek left alliance Syriza once again makes if very clear he’s not calling for a euro-exit, only a change in the dracoanian terms of the Troika-mandated austerity agreement.

Here’s what he said in an interview published in Spiegel today:

We’ll do everything we can so that Greece can retain the euro. We’re trying to convince our European partners that it’s also in their interest to finally lift the austerity diktat. We need policies that don’t destroy the Greek economy but, rather, allow for renewed growth. If the austerity course isn’t changed, it will result in the complete destruction of the Greek economy. That would indeed be a danger to the euro.

And then there’s this from Maria Petrakis and Antonis Galanopoulos of Ekathemerini:

Greece’s Democratic Left party, which may determine the governing coalition following June 17 elections, said its backing for the biggest anti-bailout party depends on getting a guarantee to stay in the euro.

“We have two red lines: one is a policy which serves the country’s steady presence in Europe, the euro, the euro area, and the other is a gradual disengagement from the terms of the bailout,” party leader Fotis Kouvelis, 63, said in an interview in Athens. “All this needs to be set out because red lines may exist but the policies you choose is what matters.”

With opinion polls indicating no party winning a majority, Kouvelis said he’d team with Coalition of the Radical Left (SYRIZA) leader Alexis Tsipras, who advocates unilaterally canceling the austerity measures demanded for a bailout, with an agenda of re-negotiating the terms of the rescue. The cuts required for 240 billion euros ($306 billion) of aid have driven the country into the worst recession since World War II.

Starting soon, it’ll be when it’s got a Y printed on it if some German financial schemers have their way.

From Stella Tsolakidou of Greek Reporter:

A new report by German tabloid newspaper Bild.de is predicting the money loss European holders of Greek-printed money will face in case the debt-ridden country does exit the Euro Zone.

The most common scenario following the Greek exit from the Euro is that the old national currency of drachma will be once again introduced but this would have to happen overnight and all Euros remaining in circulation would retain their actual value. This is the main reason why more and more Greeks are rushing to the banks to liquidize their bank accounts.

In order to address this plundering of bank accounts and severe blow to the economy, a new study suggests that the Euro notes printed in Greece and bearing the serial letter Y became the new currency of Greece instead of the old drachma.

According to the study conducted by Charles Blankart, head of the Institute of Public Finance and professor of economics at Humboldt University in Berlin, all Euro notes printed by the Greek Central Bank would immediately lose part of their value in case of a Greek Euro exit, since the same money would become the new currency of the defaulted country. Thus, holders of Greek-printed money all around Europe would automatically see the worth of their money decreasing due to the already circulated money notes.

With the conservatives taking the lead in the latest polls [albeit a slim lead], that
seems to be enough to send stock prices up in Athens.

From Capital.gr:

Greek stock market reacted strongly on Monday on hopes a pro-bailout party will win crucial national elections next month, which would avoid a catastrophic rift with international creditors and keep the struggling country within the euro currency union.

The General Index which was moving into positive territory from the beginning of trading, reached +7,36% intraday at 52,90 points.

The General Index climbed 7,7% during the session, while the rise of Alpha Bank and Eurobank stood out.

Four polls published Sunday reversed previous trends to indicate that conservative New Democracy could come first in the June 17 vote, slightly ahead of the anti-austerity radical left Syriza party. Although the conservatives would still fall short of a governing majority, the surveys suggested they could form a coalition government with socialist PASOK, which have also pledged to stick to Greece’s austerity commitments.

Treasury yields traded close to record lows as concern about Spain’s ability to recapitalize troubled banks increased demand for the safest government assets.

U.S. 10-year note yields were little changed after Spain said it may need to sell bonds to rescue Bankia group, adding to concern the European debt crisis is worsening. A report showed confidence among U.S. consumers unexpectedly fell in May to the lowest level in four months.

“None of the news in Europe now is positive,” said Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in New York one of 21 primary dealers that trade with the Federal Reserve. “Consumer confidence plummeted and that’s not helping. People are not thinking that bonds are cheap. They are being forced in.”

Newedge, a broker owned by French banks Credit Agricole (CAGR.PA) and Societe Generale (SOGN.PA), has told clients it will do no new business in Greece, in the latest sign trading houses are preparing for the country leaving the eurozone.

Newedge, which supports its hedge fund clients through its prime brokerage unit, said on Monday it will not conduct new business until further notice but will continue to support existing positions in Greek assets.

“Newedge is not exiting the Greek market but it has said it will not do any new business in Greece at this point in time,» a source close to the French broker said on Monday.

Newedge, and Europe’s top investment banks, carry out transactions on behalf of pension and hedge fund clients that leave the banks with an exposure to the largest Greek firms.

It was Fyodor Dostevevsky who said “The degree of civilization in a society is revealed by entering its prisons,” and judging by the results of the Troika’s austerity measures on Greek prisons, European “civilization” is at a low ebb.

From the Greek Street’s Areti Kotseli reports:

Amidst the deepening financial crisis, the state budget for many prisons has decreased to a minimum for some months now resulting in hundreds of detainees being malnourished and literally surviving on the charity of local communities, a Proto Thema article reveals.

The latest example is the prison in Corinth where there’s a supply stoppage from the nearby military camp, and prisoners are about to starve reports prison staff, since not even one grain of rice has been left in their warehouses. The prison staff reports they haven’t received any state funds for the last three months.

A few days earlier, the commander of the camp announced to prison management the transportation stoppage, citing lack of food supplies even for the soldiers, and had shut down the last source of supply for 84 prisoners. The response of some Corinth citizens was immediate as they took it upon themselves to support the prisoners, since all protests to the Justice Ministry were fruitless.

In the past few days, groups of Corinth residents have started collecting food as a small token of solidarity and respect to people who may be denied certain rights by the justice system.

German Chancellor Angela Merkel has been consistent in rejecting the idea of floating new euro bonds to raise money to support Greece and whatever other countries are sucked into the vortex, and for now, she’s getting here way.

From Ekathemerini:

European Central Bank Governing Council member Ewald Nowotny said a revival of bond purchases by the central bank isn’t being discussed.

“This for the time being is not a matter of discussion,” Nowotny told reporters in Belgrade on Tuesday, when asked if bond purchases were something the ECB was contemplating. “The ECB has done a number of measures that were very helpful and efficient for the economy. We are now in a situation where we have to see how these measures have worked in the economy, especially in long-term operations.”

Nowotny also said that the “prime objective” was to keep Greece in the euro area, adding that this was “something that doesn’t only depend on the side of the European authorities, but also on the decisions of Greek people and their government.”

Consider this from Peter Boone, chair of the charity Effective Intervention at the London School of Economics’ Center for Economic Performance, and Simon Johnson, former Counsellor and Director of the Research Department of the International Monetary Fund’s Economic and currently a senior fellow at the Peterson Institute for International Economics, writing in EconoMonitor:

The troika of the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) has proved unable to restore the prospect of recovery in Greece, and any new lending program would run into the same difficulties. In apparent frustration, the head of the IMF, Christine Lagarde, remarked last week, “As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time.”

Ms. Lagarde’s empathy is wearing thin and this is unfortunate – particularly as the Greek failure mostly demonstrates how wrong a single currency is for Europe. The Greek backlash reflects the enormous pain and difficulty that comes with trying to arrange “internal devaluations” (a euphemism for big wage and spending cuts) in order to restore competitiveness and repay an excessive debt level.

Faced with five years of recession, more than 20 percent unemployment, further cuts to come, and a stream of failed promises from politicians inside and outside the country, a political backlash seems only natural. With IMF leaders, EC officials, and financial journalists floating the idea of a “Greek exit” from the euro, who can now invest in or sign long-term contracts in Greece? Greece’s economy can only get worse.

Some European politicians are now telling us that an orderly exit for Greece is feasible under current conditions, and Greece will be the only nation that leaves. They are wrong. Greece’s exit is simply another step in a chain of events that leads towards a chaotic dissolution of the euro zone.

Though the IMF boss was forced to apologize for the blatantly malicious way she indicted poor Greek for the sins of the wealthy, her basic message is still getting though, though from new vocal chords.

Agence France Press reports:

Tax fraud is a “scourge” in Greece, a spokesman for the EU’s economics commissioner said Tuesday after a Facebook backlash over controversial comments by IMF head Christine Lagarde.

Monetary affairs spokesman Amadeu Altafaj told a regular European Commission press conference that “the fight against tax fraud is a central element” in the 237-billion-euro bailout deal agreed by eurozone, IMF and private-sector creditors in March.

He said the aid program, hated by many Greeks after two years already of austerity, was “of use to the Greek people in tackling the scourge of tax fraud which is a core problem in the management of public finances.”

Twelve people committed suicide on French railways between Saturday and Monday, causing lengthy delays for travellers and concern for railway authorities who say there is almost nothing they can do to prevent people from taking their own lives by jumping in front of trains.

Coupled with a technical problem late on Sunday, some 30,000 passengers were reportedly affected. The 12 people killed took their lives in separate incidents across the country between late Friday and early Monday. Information released by the police detailed a miserable chain of events.

One of the victims was a 34-year-old man who leapt to his death with his 19-month-old baby, who also died. The police said that the man was suffering “a relationship breakdown” and had written to his parents to explain his actions. In a separate case, the victim lay across the tracks of an oncoming train from Lille.

France’s state railway, SNCF, described the weekend as a “dark period”. “We’ve never seen so many suicides in such a short period of time,” SNCF spokesperson Michel Pronost told French radio Europe 1 on Monday morning. “This is a trauma for the drivers, the passengers and the railway workers. Everyone will be wondering why such a thing happened at a time like this [the French were celebrating a three-day bank holiday weekend from Saturday to Monday].”